Started a 2 year fixed rate in Jan. Mistake?

subes1

I am not sure what to do and I just wanted some advice.
Property previously shared ownership. At the beginning of the year we purchased the remaining shares and now own it with a mortgage outright. Our mortgage is £200,000. We have taken out a 2 year fixed rate, as we thought we would move home after this period and the rate was low at 1.79%.  Our circumstances have changed and now don’t know if we will move after 2 years or stay for longer- maybe 5 years.

Getting a bit nervous about what’s going on with the interest rates and not sure if I should pay an ERC of £4500 and take out a longer fixed rate, or if I should overpay the mortgage or make lump sum payments  so that at the end of the 2 years the balance is lower.  We can get a 5 year fixed but this is an extra £100 per month ( I think it’s around 3%).

I know we don’t know what is likely to happen with the interest rates apart from that they are going up, but I just wanted peoples thoughts on my options and if you were in my position what would you do and why? Or how I can weigh up my options.
 I think we can overpay but how much would we have to pay off to make a difference to our monthly payments? 
Thanks for any advice. 

Windofchange

I would suggest given it is going to cost you upwards of 5 grand to do it all again there is no point. Rates are going to have to have seriously accelerated over the next 18 months (you can reserve a new product 6 - 9 months prior to the expiry of your current deal) for it all to be worthwhile. I think you are stressing unnecessarily when the reality is nobody has a flipping clue what rates are going to do in the coming years. Look at the start of C19 and it was supposed to be curtains and both mortgage rates and property values did the exact opposite! 

fewcloudy

subes1 said:

I am not sure what to do and I just wanted some advice.
Property previously shared ownership. At the beginning of the year we purchased the remaining shares and now own it with a mortgage outright. Our mortgage is £200,000. We have taken out a 2 year fixed rate, as we thought we would move home after this period and the rate was low at 1.79%.  Our circumstances have changed and now don’t know if we will move after 2 years or stay for longer- maybe 5 years.

Getting a bit nervous about what’s going on with the interest rates and not sure if I should pay an ERC of £4500 and take out a longer fixed rate, or if I should overpay the mortgage or make lump sum payments  so that at the end of the 2 years the balance is lower.  We can get a 5 year fixed but this is an extra £100 per month ( I think it’s around 3%).

I know we don’t know what is likely to happen with the interest rates apart from that they are going up, but I just wanted peoples thoughts on my options and if you were in my position what would you do and why? Or how I can weigh up my options.
 I think we can overpay but how much would we have to pay off to make a difference to our monthly payments? 
Thanks for any advice. 

No I do not think you should pay an ERC of £4500. And yes, you should overpay your mortgage, starting from right now.  Use the Overpayments Calculator available on this website to see the difference regular monthly overpayments would make to the life of your mortgage.

subes1

Many thanks for both of your comments. I’m sorry I don’t know how to reply to you individually on the forum!
I didn’t realise you could lock in rates 6-9 months before hand. 
I will have a look at the calculator. We don’t know if paying a lump sum or overpaying monthly would make much difference but I will definitely look at this thank you. 

flashg67

Have you tried the calculator here? https://www.moneysavingexpert.com/mortgages/fixed-mortgage-calculator/

subes1

I just checked that. I am quite surprised actually. I think we may be better off trying to pay a lump sum rather than a monthly overpayment if I have read it correctly. 

We are definitely going to try and do that

steampowered

Remember that rising inflation means rising house prices.

Rising house prices means that the size of your mortgage will go down compared to the value of the house.

That means you will have a lower LTV, so at the end of the fix there is a good possibility you'll be able to remortgage onto a more competitive rate than what you are on currently.

simon_or

It's impossible to say what will work out best in the end but I would be loath to pay that level of ERC. Perhaps it's better to focus your efforts on overpaying and getting your LTV lower over the next two years.

Sam3007

I was in your place a year ago and I fixed my mortgage for 2 years instead of five as I wanted some flexibility if my circumstances change. My house price has already increased 35K in less than a year, so hopefully yours will do the same and you will have a lower LTV when you remortgage. 

Sistergold

Pay £4500 for an interest rate that might or might not escalate? Naaah, I would OP. No matter how little OPs make a difference in the long run. I know lump sum is good but you will be surprised what even £200 or so a month will do in the long run, it does add up. Also it forms good habits. 

Don’t stress about the future you will do what you have to do when the time comes. Fixing for too long is not always the best idea as change of circumstances is the only guaranteed thing in life. 

CustardApple

Whilst overpaying your mortgage - do you have a safety net if job losses were to happen?